Uzbekistan

Executive Summary

The pandemic and subsequent stagnation of the global economy had an impact on the economy of Uzbekistan and the dynamics of market reforms launched in 2016. Addressing public health and social support issues became a higher priority and required the mobilization of significant resources. Quarantine measures, domestic lockdowns, and travel restrictions led to the bankruptcy of a significant number of private businesses and an increase in unemployment, especially in the first half of the year. Mining, services, transportation, and tourism sectors suffered the most. In the second half of the year, however, business activity began to recover after quarantine restrictions were relaxed. The government has taken measures to mitigate the impact of the pandemic on business, including the introduction of temporary tax holidays, concessional lending, and other incentives.

In general, Uzbekistan’s economy demonstrated relative resilience in 2020 with 1.6% GDP growth. Despite 2020’s challenges, foreign direct investment (FDI) inflows continued – about $6.6 billion in 2020 compared to $9.3 billion in 2019 – which is undoubtedly the result of pre-pandemic reforms. Over 11,780 companies with foreign capital were operating in Uzbekistan as of January 1, 2021, including 1,399 created in 2020. While the government encouraged investors to develop processing and manufacturing industries in support of its import-substitution and export diversification policy, there was a notable increase of FDI in the service, retail, and banking sectors. In November, Uzbekistan successfully placed $750 million in dual-tranche sovereign international bonds denominated both in U.S. dollars and Uzbekistani so’m on the London Stock Exchange.

In 2020, Uzbekistan’s leadership continued to implement reform policies targeted at boosting economic growth and improving public welfare by creating a supportive climate for private and foreign direct investment and reducing the share of the public sector in the economy. To further develop anti-corruption measures, Uzbekistan established an Anti-Corruption Agency to inspect governmental bodies and legal entities, including state-owned banks, and to prevent and combat corruption in public procurement based on the ISO 37001 standard. President Mirziyoyev signed a decree to reduce government involvement in the economy, prohibiting the establishment and operation of state-owned enterprises (SOE) in commodity markets, where SOEs might compete with private firms or have conflicts of interest. The decree also called for compliance with anti-monopoly statutes by nine large SOEs, including the national airline, car producers, and energy companies. In October, Mirziyoyev announced plans to perform internal corporate governance reforms at 39 SOEs and privatize 548 SOEs, including strategic assets in the oil and gas, mining, chemical, transportation, banking, and manufacturing industries which had been considered off-limits in previous rounds of privatization. The pandemic delayed the process of SOE reorganization and privatization, and slowed further liberalization and development of Uzbekistan’s capital market.

During the reporting period, foreign businesses continued reporting cases of non-transparent public procurement practices, and cases where government agencies and state-owned enterprises inconsistently complied with official policy guidelines and regulations. Enforcement of legislation on protection of intellectual property rights also remains insufficient. Uzbekistan has the potential to become one of the most successful economies in Central Asia, but to achieve this goal, it needs to ensure that market reforms become entrenched by improving legislation and ensuring laws are then properly enforced.